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UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS
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GCE Advanced Level
MARK SCHEME for the May/June 2012 question paper
for the guidance of teachers
9707 BUSINESS STUDIES
9707/31
Paper 3 (Case Study), maximum raw mark 100
This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of
the examination. It shows the basis on which Examiners were instructed to award marks. It does not
indicate the details of the discussions that took place at an Examiners’ meeting before marking began,
which would have considered the acceptability of alternative answers.
Mark schemes must be read in conjunction with the question papers and the report on the
examination.
• Cambridge will not enter into discussions or correspondence in connection with these mark schemes.
Cambridge is publishing the mark schemes for the May/June 2012 question papers for most IGCSE,
GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
Page 2
1
Mark Scheme: Teachers’ version
GCE A LEVEL – May/June 2012
Syllabus
9707
Paper
31
Analyse TWO benefits of operating PB as three separate divisions.
Knowledge
3 marks
Application
3 marks
[10]
Analysis
4 marks
Level 2
3 marks
Good knowledge shown of
benefits of decentralisation
or profit centres.
3 marks
Both points well applied.
3–4 marks
Good use of reasoned
argument or theory to
explain both benefits.
Level 1
1–2 marks
Some knowledge shown of
benefits of decentralisation
or profit centres.
1–2 marks
Some attempt to apply
both points or one point
well applied.
1–2 marks
Some use of reasoned
argument or theory for
both benefits or one
benefit well explained.
Answers could include:
Form of decentralisation – define this or define profit centres.
Benefits:
• Allows different leadership styles in different business situations – applied to case. This can be
beneficial as different situations often need different leadership styles.
• Allows sales/profit/loss data for each division/profit centre to be calculated – action can more
effectively be taken to address problems – applied to data in Appendix 1.
• May motivate managers and workers as the performance of each division can be more easily
monitored – applied to business which is operating in a competitive industry.
• Decisions taken by managers within division – they may have better knowledge of the
products and markets the divisions operate in.
2
(a) Refer to Appendix 1. Calculate the following ratios for the ElecBikes division in 2011:
(i) Inventory turnover
=
Cost of goods sold
(1 mark)
Inventory
[3]
(Accept Sales Turnover instead of CoGS too)
=
14 - (-1) 15
(2 marks)
=
4
4
= 3.75 times (3 marks)
(Using Sales Turnover = 14/4 = 3.5 times)
(ii)
Days' sales in receivable s
Receivable s
=
× 365 (1 mark)
(debtor days)
Sales Turnover
=
3
× 365 (2 marks)
14
= 78.2 days (3 marks)
© University of Cambridge International Examinations 2012
[3]
Page 3
Mark Scheme: Teachers’ version
GCE A LEVEL – May/June 2012
Syllabus
9707
Paper
31
(b) Assess whether reducing accounts receivable and inventory levels are the best ways
to improve the financial efficiency of the ElecBikes division.
[14]
Knowledge
2 marks
Application
2 marks
Analysis
5 marks
Evaluation
5 marks
Level 2
2 marks
Good
knowledge
shown of ways
to improve
financial
efficiency.
2 marks
Both points well
applied.
3–5 marks
Good use of
reasoned argument
or theory to explain
both benefits.
3–5 marks
Good judgement
shown in answer
and conclusion.
Level 1
1 mark
Knowledge
shown on ways
to improve
financial
efficiency.
1 mark
Some attempt to
apply both ways
or one way well
applied.
1–2 marks
Some use of
reasoned argument
or theory for both
benefits or one
benefit well
explained.
1–2 marks
Some judgement
shown in answer
and/or conclusion.
Answers could include:
• Reducing debtors will reduce days’ sales in receivables – improves working capital and
financial efficiency of the business.
• Less capital tied up in receivables which can be invested elsewhere in this division e.g.
further research.
• Reducing inventories – of parts or completed products (sales are slow so most inventory
might be in this form) – improves the inventory turnover ratio.
• Less capital tied up in inventories – e.g. through use of JIT – will release capital for
further investment in this division.
• However, perhaps these ratios are “poor” because products have not been on market for
long.
• Inventories of parts might be expensive due to nature of the products/components.
• Inventories of completed products might be in anticipation of sales surge.
• Evaluation: How viable or wise would the use of JIT be in these circumstances?
• Specialist retailers have been offered credit to encourage stocking of these newly
developed products – might be an essential part of the marketing strategy.
• Evaluation: Might be necessary to offer long credit periods until sales pick up.
• Evaluation: Increased sales will, without increased credit periods/inventories, help to
improve financial efficiency ratios – PB might need to wait another year or so before
taking drastic steps to reduce credit periods or inventory levels. If products no more
successful then, important decisions might need to be made.
© University of Cambridge International Examinations 2012
Page 4
3
Mark Scheme: Teachers’ version
GCE A LEVEL – May/June 2012
Syllabus
9707
Paper
31
Discuss whether the leadership styles used within PB’s three divisions are appropriate.
[14]
Knowledge
2 marks
Application
2 marks
Analysis
5 marks
Evaluation
5 marks
Level 2
2 marks
Good knowledge
of leadership
styles shown.
2 marks
Leadership styles
well applied to
case.
3–5 marks
Good use of
reasoned argument
or theory to explain
leadership styles
benefits and/or
limitations.
3–5 marks
Good judgement
shown in answer
and conclusion.
Level 1
1 mark
Some knowledge
of leadership
styles shown.
1 mark
Some attempt to
apply leadership
style to case.
1–2 marks
Some use of
reasoned argument
or theory to explain
leadership styles.
1–2 marks
Some judgement
shown in answer
and/or conclusion.
Answers could include:
• Evidence seems to suggest:
o Bureaucratic – Kalei
o Autocratic – Abbas
o Deomocratic – Gary
o Laissez-faire – Vip.
• Explanation of the key features of all or some of these leadership styles – at least two
needed for Level 2 marks.
• Discussion/analysis of appropriateness when applied to these 3 divisions.
• Would a more democratic style in Bikes For All help to make it more productive, efficient and
competitive? Will Theory X approach lead to workers acting in the way that is expected of
them? Is this the best way to keep ‘average costs low’?
• Would a less democratic style be more appropriate in SpecBikes? Are workers well qualified
to take a more participative role? Would this increase their own enthusiasm and motivation?
How much time is taken in ‘democratic decision making’?
• Is laissez-faire appropriate for a research division? Now that production and sales have
started would a more directive approach now be more effective? Is the style of leadership
leading to good designs but contributing to high costs and no profits?
Evaluation:
• Judgement about appropriateness of styles in different divisions. There is no ONE overall
effective and appropriate style. It depends on the nature of the situation, problem, type of
workers, nature of work. Apply judgement to this business using the information provided.
© University of Cambridge International Examinations 2012
Page 5
4
Mark Scheme: Teachers’ version
GCE A LEVEL – May/June 2012
Syllabus
9707
Paper
31
(a) Refer to Appendix 2. Calculate the average rates of return (ARR) over 5 years for
BOTH locations.
[6]
Ready reckoner:
Results
Explanation
Mark
Both correct
X = 40%; Y = 43%
X = 150-50/5 = 20
20/50 x100 = 40%
Y = 220–70/5 = 30
30/70 × 100 = 43%
Correct answers –
allow maximum marks
even if no working
shown
6
One correct and
one error
40% or 44% and working incorrect
on other one
Must show how
incorrect answer
arrived at
5
Capital cost not
subtracted
60% and 63%
One error made twice
4
No division by
number of years
200% and 210%
One error made twice
4
2–3
Some attempt to
use data and
apply formula
Correct formula
ARR =
Annual average profit
× 100
Capital cost
If no other rewardable
content
ACCEPT ‘Average cost of capital’
© University of Cambridge International Examinations 2012
1
Page 6
Mark Scheme: Teachers’ version
GCE A LEVEL – May/June 2012
Syllabus
9707
Paper
31
(b) Recommend the location where the Bikes for All division should open its new factory.
Justify your answer using your results from 4(a), further analysis of data in Appendix
2 and any other relevant information.
[14]
Knowledge
2 marks
Application
2 marks
Analysis
5 marks
Evaluation
5 marks
Level 2
2 marks
Good knowledge
of locational
factors.
2 marks
Locational factors
well applied to
case.
3–5 marks
Good use of
reasoned
argument or
theory to explain
locational factors.
3–5 marks
Good judgement
shown in
supported
recommendation.
Level 1
1 mark
Some knowledge
of locational
factors.
1 mark
Some attempt to
apply locational
factor(s).
1–2 marks
Some use of
reasoned
argument or
theory to explain
locational factors.
1–2 marks
Some judgement
shown in answer
and/or
recommendation.
Answers could include:
• Any relevant use of Appendix 2 table or other information.
• Calculation of payback periods (award K/P marks).
• Location X = 20 months; Location Y = 2 years.
• Break-even level of production (award K/P marks).
• X = 250000 units; Y = 120000 units.
• Analysis of numerical results in 4(a) and any other relevant calculations (OFR).
• How important is infrastructure? Exports to 50 countries so transport is very significant.
Location Y much less well placed in this respect.
• Higher unemployment in Y – but how trained and experienced are they in production?
• Lack of HE provision in Y – how important is this? Can PB take its own engineers etc. to
this new location?
• Lower labour costs in Y – very important in this industry BUT why is productivity
forecasted to be lower?
• Corruption – risk of being tangled up in unethical practices? Kalei likes to follow rules –
surely acting unethically to gain, for example, planning permission would be against this
approach?
• Social responsibility not being considered if 4 sites closed in Location X country and jobs
sent to Location Y country.
Evaluation:
• Weighing up of factors, prioritisation.
• Quantitative data and results point to Location Y but qualitative data points to Location
X.
• Data is forecasted – how reliable is it, especially for Location Y which is more of an
unknown quantity?
• Location X. Which is more important in this case? Overall recommendation needed and
should be based on preceding analysis.
© University of Cambridge International Examinations 2012
Page 7
5
Mark Scheme: Teachers’ version
GCE A LEVEL – May/June 2012
Syllabus
9707
Paper
31
Discuss how the business could make the demand for the bicycles produced by Bikes for
All less sensitive to price increases.
[16]
Knowledge
3 marks
Application
3 marks
Analysis
5 marks
Evaluation
5 marks
Level 2
3 marks
Good knowledge
of marketing
issues.
3 marks
Marketing issues
well applied to
case.
3–5 marks
Good use of
reasoned argument
or theory to explain
marketing changes.
3–5 marks
Good judgement
shown in answer
and conclusion.
Level 1
1–2 marks
Some knowledge
of marketing
issues e.g. PED.
1–2 marks
Some attempt to
apply marketing
issue.
1–2 marks
Some use of
reasoned argument
or theory to explain
marketing changes.
1–2 marks
Some judgement
shown in answer
and/or conclusion.
Answers could include:
• Explanation/definition of marketing mix or marketing strategy.
• Product – improve quality – BUT what about cost of goods sold rising more than prices?
• Price – this is the question – how to increase price effectively! Use market segmentation to
make a range or products aimed at different groups and charge different prices?
• Place – own shops? Sell directly to retailers to cut out wholesalers mark up – advantages
and disadvantages of these proposals? Promotion – sponsor a cycle team or charity event to
gain free publicity? How high is AED for mass market bikes? Might need to identify clear
brand in order to spend promotion budget effectively.
Evaluation:
• Mix changes need to be integrated, linked to Kalei’s objectives and supported by appropriate
budget.
• Need to base marketing strategy changes on detailed market research evidence first?
• Conclusion should clearly indicate how the proposed changes will make PED smaller
(demand less responsive to price increases).
© University of Cambridge International Examinations 2012
Page 8
Mark Scheme: Teachers’ version
GCE A LEVEL – May/June 2012
Syllabus
9707
Paper
31
Questions 6 and 7 use this mark grid:
Knowledge 3
marks
Application 3 marks
Analysis 4 marks
Level 3
6
Evaluation 10
marks
7–10 marks
Good judgement
shown in answer
and conclusion.
Level 2
3 marks
Good knowledge
of issues shown.
3 marks
Issues well applied
to case.
3–4 marks
Good use of
reasoned argument
or theory to explain
answer.
4–6 marks
Good judgement
shown in answer
or conclusion.
Level 1
1–2 marks
Some knowledge
of issues shown.
1–2 marks
Some attempt to
apply issue.
1–2 marks
Some use of
reasoned argument
or theory to explain
answer.
12 marks
Some judgement
shown in answer
and/or conclusion.
Evaluate the usefulness to Kalei of doing a SWOT analysis of Patel Bicycles.
[20]
Answers could include:
• SWOT – definition – a form of strategic analysis that identifies and analyses the internal
strengths and weaknesses and external opportunities and threats.
• Strengths: Kalei as entrepreneurial leader; 3 divisions – spreading of some risk; two are
profitable; R and D in ElecBikes.
• Weaknesses: Declining profitability; 3 factories for Bikes For All; loss at ElecBikes; different
leadership styles (could be a strength?); no diversification out of bicycles; raising finance might
be a problem with falling profits.
• Opportunities: Develop ElecBikes further; the two diversification strategies; expansion of sales
into other countries; new bicycle products.
• Threats: Competition in mass market; demand for higher price bikes might be income elastic
and adverse macro-economic conditions would hit demand; government law changes; cost of
motoring and other forms of transport.
• This analysis helps managers assess the most likely/suitable future strategies and the
constraints on them.
• Competitive advantage could be developed by developing a good ‘fit’\between future
strategies and current strengths e.g. is Rely’s proposal better than the ASB one?
• Is it necessary to overcome some of the weaknesses before adopting other future strategies
e.g. should ElecBikes be made profitable first?
Evaluation:
• SWOT can be subjective – which managers are undertaking it and are they unbiased in their
assessment?
• Other analysis will be needed too – SWOT is just a starting point e.g. PEST and investment
appraisal.
• BUT it is a good starting point especially for Kalei who clearly wants to “go places” and needs
to clarify and gain greater understanding of the strategic options available and how they would
suit PB.
© University of Cambridge International Examinations 2012
Page 9
7
Mark Scheme: Teachers’ version
GCE A LEVEL – May/June 2012
Syllabus
9707
Paper
31
Discuss the strategic decision-making techniques that Kalei could use when making the
choice between Strategy A and Strategy B.
[20]
Answers could include:
• Strategic choice – very important as it could determine the future direction and profitability of
the business.
• Factors: Cost, risk, potential profit, impact on future of the business.
• Techniques:
o Decision trees – layout the risks/payoffs and expected monetary values – BUT how
accurate will these be for brand new projects?
o Ansoff’s Matrix – considers risk of different strategies – BUT not a quantitative technique.
o Force field analysis – useful for implementing change in a less challenging and more
acceptable way – BUT will it help in deciding between these two strategies?
o Investment appraisal – quantitative BUT heavily reliant on estimated cash flows.
Evaluation (final judgement – as some evaluative points given above):
• Perhaps the most important factor AND the most important ‘technique’ is Kalei’s own
judgement and her sense of what is best for her business. This has worked well so far.
© University of Cambridge International Examinations 2012